Why EXACT Sciences Corporation Could Underperform

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of EXACT Sciences Corporation (NASDAQ: EXAS  ) slumped more than 4% today after Wedbush downgraded the biotechnology company from outperform to neutral.

So what: Along with the downgrade, analyst Zarak Khurshid planted a price target of $14, representing about 1% worth of downside to yesterday's close. So while momentum traders might be attracted to EXACT's price strength in recent weeks, Khurshid's call could reflect a sense on Wall Street that its valuation is becoming a bit stretched.

Now what: According to Wedbush, EXACT's risk/reward trade-off isn't too appealing at this point. "We anticipate FDA approval later in 2Q14 followed by a preliminary CMS coverage decision (i.e., reimbursement and testing interval) a few days later," said Khurshid. "Historically, expectations have been relatively high going into important EXAS events and more often than not, shares sell off on key news." When you couple EXACT's speculative nature with its still-hot stock price -- up more than 40% from its 52-week lows -- it's tough to disagree with Wedbush's cautious stance. 

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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Related Tickers

8/28/2015 3:59 PM
EXAS $22.34 Up +0.15 +0.68%
EXACT Sciences Cor… CAPS Rating: **